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Q 7: The agencies request comment on whether U.S. banks subject to the advanced approaches in the proposed rule (that is, core banks and opt-in banks) should be permitted to use other credit and operational risk approaches similar to those provided under the New Accord. With respect to the credit risk capital requirement, the agencies request comment on whether banks should be provided the option of using a U.S. version of the so-called ‘‘standardized approach’’ of the New Accord and on the appropriate length of time for such an option.

Q 8A: The agencies seeks comment on the proposed BHC consolidated non-insurance assets threshold relative to the consolidated DI assets threshold in the ANPR.

Q 8B: The agencies seek comment on the proposed scope of application. In particular, the agencies seek comment on the regulatory burden of a framework that requires the advanced approaches to be implemented by each subsidiary DI of a BHC or bank that uses the advanced approaches.

CFG/RBS Comments

At the principle level, we support any action that drives consistency in international implementation. Given this stance, which underpins our external engagement, we would support any moves by the US agencies to allow for the standardized approaches for credit (and TSA for operational risk) to be available for firms operating in the US market. Indeed, flexibility around credit risk may be beneficial as it is not always possible, given the lack of default data, to apply the AIRB requirements (data and associated use test).

We would not support, however, a move to implement an amended standardized approach for credit and operational risk; this would just create confusion and extra burdens for firms, regulators and stakeholders alike.

At a practical level, however, we would not be able to retain much of Citizens on the standardized approach to credit risk as, under the FSA interpretation of the EU CRD, no more than 15% of total group assets can remain on this approach. In reality, we need to implement an IRB approach in Citizens to achieve our wider objectives. As the EU elements of the Group are using TSA for operational risk initially, we might wish to consider this option as an interim step within the US, should other calculation methods be made available for this risk type.

To be covered in the letter accompanying the response. CFG is an opt-in bank. Should the group adopt a BHC approach in the US, this status may change to mandated. This may occur before the 1/1/09 implementation date. A flexible approach would need to be adopted by the US regulators as it is unlikely that the Group could accelerate implementation of Basel 2 in the US, even with a change of regulatory status.


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